Note: Our nightly “S&P 500 Outlook,Forecast, and Trading plan for Mon, 07/09” – please check back later.
S&P 500 TODAY – FRI 07/06
THE GIST (“THE WHAT”)
In a clear sell the rumor and buy the news situation, the S&P 500 index had its best day in a month even as trade tensions between U.S. and China escalated after tariffs on $34 billion worth of Chinese goods went into effect today, and China responded with tariffs on U.S. shipments of soybeans and cars. Trade concerns did little to dampen investor sentiment in today’s session as the index rallied at the open following a better-than-expected jobs report.
The index bounced off a strong resistance level found at 20 DMA in the early session and also moved beyond the 2700 – 2745 trading range it had been confined to over the last 8 days. In a change of trend, the index did not reverse gains in the later session but held on to the gains, albeit trading in a very tight range throughout the remaining session. Driven by Health Care sector, the index closed at 2759.82, up 23.21 points, gaining a decent 0.85% over Thursday’s close and with the first weekly gain of 1.52% after three straight weekly losses.
THE DETAILS (The “How & Why”):
Taking the first step towards the trade war, after months of tit-for-tat trade talks, the Trump administration imposed 25% tariffs on Chinese imports worth $34 billion. As promised, the Chinese government also reciprocated with tariff of their own on U.S. imports of soybeans and automobiles. However, investors shrugged off escalating trade tensions, focusing on a strong jobs report instead. The jobs report came in at 213,000 in June compared to the expected 200,000. On the other hand, unemployment rate rose unexpectedly to 4% in June compared to the 18-month low of 3.8% in May.
The 10-year Treasury yields settled slightly lower at 2.82% following the employment report. Wage growth rose below-expectations at a moderate 2.7% annual rate suggesting that the Federal Reserve might not get aggressive with its rate hikes. Despite a fall in yields, Financials stocks rose 0.50% in today’s broad based rally and were up a slight 0.20% on a weekly basis.
Day’s gains were driven by Health Care sector as Biogen Inc. soared 19.63%, its biggest one-day gain since 2007 following news of a positive result from a successful trial of its Alzheimer’s drug. The sector was also the best performing sector this week with a weekly gain of 3.25%. Technology sector was the next best performer in the index, up 1.24%, led by a 5.5% gain in Advanced Micro Devices Inc. and a 3.53% gain in Twitter Inc. The sector was one of the best gainers this week, up 2.32% after facing the investors’ brunt last week on concerns that the latest sanctions on Chinese investment in American technology firms could limit valuable capital inflows to the industry.
Defensive stocks like Utilities, Consumer Staples and Real Estate were also strong gainers this week, up 2.47%, 1.28% and 1.91%, respectively. The broader Telecommunication sector gained 0.36%, extending previous session gains. Energy sector reversed Thursday’s losses, gaining 0.67% in today’s optimistic trading mood despite a fall in global oil prices. Oil prices continued their decline on rising crude oil supply concerns after Saudi Arabia lowered their oil prices on Thursday in response to President Trump’s recent demand aimed at OPEC to reduce oil prices immediately.